Press release

Thoughtworks Reports Second Quarter 2023 Financial Results and Announces Restructuring Actions

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Thoughtworks Holding, Inc. (NASDAQ: TWKS) (“Thoughtworks” or the “Company”), a leading global technology consultancy, today reported results for the second quarter of 2023 and provided an updated financial outlook for the full year and third quarter of 2023.

Guo Xiao, Thoughtworks’ Chief Executive Officer, said, “We delivered revenues of $287.2 million in the second quarter of 2023. This fell short of our guidance as the macro-related factors that we have discussed in recent quarters had an increased influence on client behavior during the quarter, impacting results to a greater extent than anticipated. In particular, we experienced a number of unanticipated project deferrals and cancellations by clients part-way through the quarter. Our investments in outbound demand generation resulted in stable bookings of $1.5 billion on a trailing twelve month basis. We remain committed to investing in demand generation, while also taking restructuring actions that are intended to achieve operational efficiencies, optimize resource allocation, and to be more responsive to our clients’ needs. We remain close with our clients, and our teams are focused on helping solve their most difficult technological problems.”

Thoughtworks announces restructuring actions

Following a detailed review of its business, Thoughtworks is announcing a structural reorganization that will (i) move its operational functions from a geographic to a centralized model, (ii) create a new organizational home for the majority of its client facing workforce, our Digital Engineering Center, and (iii) evolve its regional market structure. Centralizing operations globally will reduce overall costs, better align its resources to strategic priorities, right-size its operations, and increase operational efficiencies. The new Digital Engineering Center will provide supply across the regional markets and allow the Company to optimize resource allocation globally to better align to clients’ needs. Finally, these changes will enable its regional markets to have a more client and industry-based go-to-market focus while continuing to fund our investments in demand generation.

The majority of the actions will be taken in the third quarter of 2023 and are expected to be completed within the next twelve months. Upon completion of the program, the Company expects to realize annualized cost savings of approximately $75 million to $85 million, and impact approximately 5% to 6% of our employee headcount globally. The majority of the annualized cost savings will come from reductions in operating spend, particularly in non-client, back-office functions.

Thoughtworks expects to incur total pre-tax cash charges of approximately $20 million to $25 million (the “Total Charges”), of which approximately $18 million to $20 million are expected to be recognized in 2023. The Total Charges include $18 million to $22 million in wage-related costs, such as employee severance and related benefits, and $2 million to $3 million in non-wage related expenses, including costs related to reducing leased office space, vendor contract cancellations and professional fees.

QTD second quarter 2023 summary

 

Three Months Ended

June 30,

 

 

 

 

$ in millions, except per share data

2023

 

2022

 

Change

 

% Change(1)

GAAP Metrics:

 

 

 

 

 

 

 

Revenues(2)

$

287.2

 

 

$

332.1

 

 

$

(44.9

)

 

(13.5

)%

Gross Profit

$

90.9

 

 

$

81.6

 

 

$

9.3

 

 

11.4

%

Gross Margin

 

31.6

%

 

 

24.6

%

 

 

7.0

%

 

 

SG&A

$

86.6

 

 

$

99.4

 

 

$

(12.8

)

 

(12.9

)%

SG&A Margin

 

30.2

%

 

 

29.9

%

 

 

0.3

%

 

 

Stock-based compensation

$

17.6

 

 

$

69.0

 

 

$

(51.4

)

 

(74.5

)%

Net loss

$

(12.3

)

 

$

(39.3

)

 

$

27.0

 

 

 

Net loss margin

 

(4.3

)%

 

 

(11.8

)%

 

 

7.5

%

 

 

Diluted loss per share

$

(0.04

)

 

$

(0.13

)

 

$

0.09

 

 

 

Cash flow from operations

$

(16.8

)

 

$

27.6

 

 

$

(44.4

)

 

 

Non-GAAP Metrics(3):

 

 

 

 

 

 

 

Revenue Growth Rate at constant currency(4)

 

(12.5

)%

 

 

33.5

%

 

 

 

 

Adjusted Gross Profit

$

105.0

 

 

$

135.0

 

 

$

(30.0

)

 

(22.2

)%

Adjusted Gross Margin

 

36.6

%

 

 

40.6

%

 

 

(4.0

)%

 

 

Adjusted SG&A

$

76.0

 

 

$

78.6

 

 

$

(2.6

)

 

(3.3

)%

Adjusted SG&A Margin

 

26.5

%

 

 

23.7

%

 

 

2.8

%

 

 

Adjusted Net Income

$

10.1

 

 

$

37.0

 

 

$

(26.9

)

 

(72.6

)%

Adjusted EBITDA

$

29.3

 

 

$

58.5

 

 

$

(29.2

)

 

(49.9

)%

Adjusted EBITDA Margin

 

10.2

%

 

 

17.6

%

 

 

(7.4

)%

 

 

Adjusted Diluted EPS

$

0.03

 

 

$

0.11

 

 

$

(0.08

)

 

(72.7

)%

Free Cash Flow

$

(18.8

)

 

$

20.2

 

 

$

(39.0

)

 

 

YTD second quarter 2023 summary

 

Six Months Ended

June 30,

 

 

 

 

$ in millions, except per share data

2023

 

2022

 

Change

 

% Change(1)

GAAP Metrics:

 

 

 

 

 

 

 

Revenues(2)

$

594.3

 

 

$

653.0

 

 

$

(58.7

)

 

(9.0

)%

Gross Profit

$

188.4

 

 

$

152.8

 

 

$

35.6

 

 

23.3

%

Gross Margin

 

31.7

%

 

 

23.4

%

 

 

8.3

%

 

 

SG&A

$

173.0

 

 

$

204.1

 

 

$

(31.1

)

 

(15.2

)%

SG&A Margin

 

29.1

%

 

 

31.3

%

 

 

(2.2

)%

 

 

Stock-based compensation

$

35.3

 

 

$

169.1

 

 

$

(133.8

)

 

(79.1

)%

Net loss

$

(20.4

)

 

$

(82.9

)

 

$

62.5

 

 

 

Net loss margin

 

(3.4

)%

 

 

(12.7

)%

 

 

9.3

%

 

 

Diluted loss per share

$

(0.06

)

 

$

(0.27

)

 

$

0.21

 

 

 

Cash flow from operations

$

16.2

 

 

$

21.5

 

 

$

(5.3

)

 

(24.7

)%

Non-GAAP Metrics(3):

 

 

 

 

 

 

 

Revenue Growth Rate at constant currency(4)

 

(6.9

)%

 

 

35.7

%

 

 

 

 

Adjusted Gross Profit

$

216.8

 

 

$

281.2

 

 

$

(64.4

)

 

(22.9

)%

Adjusted Gross Margin

 

36.5

%

 

 

43.1

%

 

 

(6.6

)%

 

 

Adjusted SG&A

$

153.2

 

 

$

151.1

 

 

$

2.1

 

 

1.4

%

Adjusted SG&A Margin

 

25.8

%

 

 

23.1

%

 

 

2.7

%

 

 

Adjusted Net Income

$

20.2

 

 

$

81.0

 

 

$

(60.8

)

 

(75.0

)%

Adjusted EBITDA

$

64.2

 

 

$

131.4

 

 

$

(67.2

)

 

(51.1

)%

Adjusted EBITDA Margin

 

10.8

%

 

 

20.1

%

 

 

(9.3

)%

 

 

Adjusted Diluted EPS

$

0.06

 

 

$

0.25

 

 

$

(0.19

)

 

(76.0

)%

Free Cash Flow

$

12.6

 

 

$

9.0

 

 

$

3.6

 

 

40.0

%

 

(1) For QTD, percentage change for net loss, diluted loss per share, cash flow from operations and free cash flow were excluded as they were determined to be not meaningful due to a loss or negative position in one or both periods. For YTD, percentage change for net loss and diluted loss per share were excluded as they were determined to be not meaningful due to a loss or negative position in one or both periods.

(2) Acquisitions completed in the last twelve months contributed approximately 1% to the revenue growth rate for the quarter and 2% for the six months ended June 30, 2023.

(3) See “Non-GAAP financial measures” for how we define these measures and the financial tables that accompany this release for reconciliation of these measures to the closest comparable GAAP measures.

(4) Revenue Growth Rate at Constant Currency is calculated by translating the current period revenues into U.S. dollars at the weighted average exchange rates of the prior period of comparison; therefore the weighted average rates used in each respective calculation are not consistent. The change in revenue growth rate at constant currency was excluded, as it was determined to be not meaningful.

Bookings

Our overall bookings for the trailing twelve months ended June 30, 2023 were flat year-over-year and sequentially at $1.5 billion. For the trailing twelve months ended June 30, 2023, we had 38 clients with bookings greater than $10 million compared to 35 clients for the trailing twelve months ended June 30, 2022.

Revenue growth rate by customer location

 

Three Months Ended

June 30, 2023

 

Six Months Ended

June 30, 2023

North America

(19.6)%

 

(13.9)%

APAC

(8.4)%

 

(5.3)%

Europe

(8.4)%

 

(3.9)%

LATAM

(24.8)%

 

(20.8)%

Revenue growth rate by industry vertical

 

Three Months Ended

June 30, 2023

 

Six Months Ended

June 30, 2023

Technology and business services

(26.8)%

 

(20.4)%

Energy, public and health services

(1.7)%

 

3.7%

Retail and consumer

(29.0)%

 

(26.1)%

Financial services and insurance

(11.6)%

 

(8.6)%

Automotive, travel and transportation

18.4%

 

20.2%

Liquidity

We had cash and cash equivalents of $88.2 million as of June 30, 2023, along with $300.0 million of borrowing capacity under our revolving credit line. Our total debt outstanding, before deferred financing fees, was $298.9 million at June 30, 2023.

Financial outlook

Thoughtworks provides the following outlook for the third quarter and full year 2023:

Third quarter

Thoughtworks expects the following for the third quarter:

  • Revenues in the range of $275 million to $285 million, reflecting year-over-year decline of (17)% to (14)%; or (19)% to (16)% in constant currency. Acquisitions, including those completed during 2023, are expected to contribute approximately 1% to the year-over-year revenue growth rate;

  • Adjusted EBITDA Margin(5) in the range of 9.0% to 11.0%;

  • Adjusted Diluted EPS(5) in the range of $0.02 to $0.03, assuming a weighted average of 332 million diluted outstanding shares; and

  • Stock-based compensation expense of $18 million.

Full year

Thoughtworks now expects the following for the full year:

  • Revenues in the range of $1,137 million to $1,157 million, reflecting year-over-year decline of (12)% to (11)%; or (12)% to (11)% in constant currency. Acquisitions, including those completed during 2023, are expected to contribute approximately 2% to the year-over-year revenue growth rate;

  • Adjusted EBITDA Margin(5) in the range of 11.0% to 12.0%;

  • Adjusted Diluted EPS(5) in the range of $0.11 to $0.13, assuming a weighted average of 332 million diluted outstanding shares; and

  • Stock-based compensation expense of $74 million.

(5) Adjusted EBITDA Margin and Adjusted Diluted EPS exclude the impacts from restructuring charges.

Conference call information

Thoughtworks will host a conference call and webcast at 8:00 a.m. Eastern Time on Tuesday, August 8, 2023, to discuss our financial results. To access the conference call and webcast and the accompanying slide presentation, which has additional information regarding Thoughtworks’ operating results, you can visit our investor relations website at https://investors.thoughtworks.com. A replay of the webcast will be made available on our investor relations website at https://investors.thoughtworks.com. Information on Thoughtworks’ website is not part of this press release.

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About Thoughtworks

Thoughtworks is a global technology consultancy that integrates strategy, design and engineering to drive digital innovation. We are over 11,500 Thoughtworkers strong across 51 offices in 18 countries. For 30 years, we’ve delivered extraordinary impact together with our clients by helping them solve complex business problems with technology as the differentiator.

Thoughtworks uses and intends to continue to use our investor relations website at https://investors.thoughtworks.com and social media, @thoughtworks on Twitter and LinkedIn, as a means of publicly disclosing material information and for complying with our disclosure obligations under Regulation Fair Disclosure. Investors should monitor these channels in addition to following the Company’s press releases, SEC filings, public conference calls and webcasts.

Forward-looking statements

This press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify these forward-looking statements by the use of terms such as “expect,” “will,” “continue,” or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this press release. You should read this press release with the understanding that our actual future results may be materially different from what we expect. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, which include but are not limited to: the statements under “Financial outlook,” including expectations relating to revenues and other financial or business metrics; the statements under “Thoughtworks announces restructuring actions,” including expectations relating to the size of the restructuring actions, the amount and timing of related cost savings and charges and the potential long-term benefits of the restructuring actions; statements regarding relationships with existing and potential clients and their engagement decisions; and any other statements of expectation or belief. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include, but are not limited to, those related to: current and future impact of macro-related factors on Thoughtworks’ clients’ engagement decisions, Thoughtworks’ business and industry; the effects of competition on the future business of Thoughtworks; uncertainty regarding the demand for and market utilization of our services; the ability to implement our restructuring actions, including the costs of such actions and the uncertainty of the impact of such actions on financial performance; the ability to maintain or acquire new client relationships; other general business and economic conditions (including such conditions related to inflation and foreign currency exchange rates); and our ability to successfully execute our strategy and strategic plans. For additional information concerning these and other risks and uncertainties, please see Thoughtworks’ latest Annual Report on Form 10-K, latest Quarterly Report on Form 10-Q, and other filings and reports that Thoughtworks may file from time to time. Except as required by law, Thoughtworks assumes no obligation, and does not intend, to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Non-GAAP financial measures

Certain financial metrics contained in this press release are considered non-GAAP financial measures. Definitions of and the related reconciliations for these non-GAAP financial measures can be found below. We use these non-GAAP measures in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that these non-GAAP measures provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. However, non-GAAP measures have limitations as analytical tools, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP. For example, many of the non-GAAP financial measures used herein exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business and an important part of our compensation strategy.

Certain non-GAAP measures related to our financial outlook included in this press release and the associated webcast were not reconciled to the comparable GAAP financial measures because the GAAP measures are not assessable on a forward-looking basis. The Company is unable to reconcile these forward-looking non-GAAP financial measures to the most directly comparable GAAP measures without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include stock-based compensation, acquisitions, income tax effects of adjustments and other items. The unavailable information could have a significant impact on the Company’s GAAP financial results. Based on the foregoing, the Company believes that providing estimates of the amounts that would be required to reconcile the range of the non-GAAP measures to forecasted GAAP measures would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.

Revenue Growth Rate and Revenue Growth Rate at constant currency

Certain of our subsidiaries use functional currencies other than the U.S. dollar and the translation of these foreign currency amounts into U.S. dollars can impact the comparability of our revenues between periods. Accordingly, we use Revenue Growth Rate at constant currency as an important indicator of our underlying performance. Revenue Growth Rate at constant currency is calculated by applying the average exchange rates in effect during the earlier comparative fiscal period to the later fiscal period.

Adjusted Gross Profit and Adjusted Gross Margin

We define gross profit as total revenues less cost of revenues. We define Adjusted Gross Profit as gross profit excluding stock-based compensation expense, employer payroll related expense on employee equity incentive plan and depreciation expense. We calculate Adjusted Gross Margin by dividing Adjusted Gross Profit by total revenues. Our management uses Adjusted Gross Profit to assess overall performance and profitability, without regard to the aforementioned adjustments, which are unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Adjusted SG&A and Adjusted SG&A Margin

We define Adjusted SG&A as selling, general and administrative expense excluding stock-based compensation expense, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations and employer payroll related expense on employee equity incentive plan. We calculate Adjusted SG&A Margin by dividing Adjusted SG&A by total revenues.

Our management uses Adjusted SG&A and Adjusted SG&A Margin to assess our overall performance, without regard to items such as stock-based compensation expense and other items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Adjusted Net Income and Adjusted Diluted EPS

We define Adjusted Net Income as net loss adjusted for unrealized loss (gain) on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, restructuring charges, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, employer payroll related expense on employee equity incentive plan, final tax assessment for closed operations, change in fair value of contingent consideration and income tax effects of adjustments.

We define Adjusted Diluted EPS as diluted loss per share, with the numerator adjusted for the aforementioned adjustments to Adjusted Net Income. In other words, the numerator for Adjusted Diluted EPS utilizes Adjusted Net Income. We calculate Adjusted Diluted EPS by dividing Adjusted Net Income by diluted weighted average shares outstanding.

Our management uses Adjusted Net Income and Adjusted Diluted EPS to assess our overall performance, without regard to items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations, net of the income tax effects of adjustments.

Our management uses Adjusted Net Income for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net loss adjusted to exclude income tax expense; interest expense; other (income) expense, net, excluding a gain related to the mark to market adjustment on shares received in relation to the sale and settlement of trade receivables in 2022; unrealized loss (gain) on foreign currency exchange; stock-based compensation expense; depreciation and amortization expense; acquisition costs; restructuring charges; certain professional fees that are considered unrelated to our ongoing revenue generating operations; employer payroll related expense on employee equity incentive plan; and final tax assessment for closed operations. We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA by total revenues.

Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to the aforementioned adjustments that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired or costs that are unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations.

Our management uses Adjusted EBITDA and Adjusted EBITDA Margin for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Free Cash Flow

We define Free Cash Flow as net cash provided by operating activities less cash used for purchases of property and equipment. We believe that Free Cash Flow is a useful indicator of liquidity for investors and is used by our management as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments. There are a number of limitations related to the use of free cash flow as compared to net cash from operating activities, including that Free Cash Flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made.

 

THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(unaudited)

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2023

 

2022

 

2023

 

2022

Revenues

$

287,215

 

 

$

332,107

 

 

$

594,271

 

 

$

653,047

 

Operating expenses:

 

 

 

 

 

 

 

Cost of revenues

 

196,338

 

 

 

250,462

 

 

 

405,860

 

 

 

500,227

 

Selling, general and administrative expenses

 

86,626

 

 

 

99,352

 

 

 

172,966

 

 

 

204,117

 

Depreciation and amortization

 

5,874

 

 

 

4,215

 

 

 

11,416

 

 

 

10,061

 

Total operating expenses

 

288,838

 

 

 

354,029

 

 

 

590,242

 

 

 

714,405

 

Income (loss) from operations

 

(1,623

)

 

 

(21,922

)

 

 

4,029

 

 

 

(61,358

)

Other (expense) income:

 

 

 

 

 

 

 

Interest expense

 

(6,150

)

 

 

(4,984

)

 

 

(13,012

)

 

 

(9,631

)

Net realized and unrealized foreign currency (loss) gain

 

(30

)

 

 

(11,512

)

 

 

1,155

 

 

 

(6,774

)

Other (expense) income, net

 

135

 

 

 

(413

)

 

 

(588

)

 

 

(325

)

Total other income (expense)

 

(6,045

)

 

 

(16,909

)

 

 

(12,445

)

 

 

(16,730

)

Loss before income taxes

 

(7,668

)

 

 

(38,831

)

 

 

(8,416

)

 

 

(78,088

)

Income tax expense

 

4,604

 

 

 

477

 

 

 

11,963

 

 

 

4,805

 

Net loss

$

(12,272

)

 

$

(39,308

)

 

$

(20,379

)

 

$

(82,893

)

 

 

 

 

 

 

 

 

Other comprehensive (loss), net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(651

)

 

 

(20,760

)

 

 

(409

)

 

 

(26,231

)

Comprehensive loss

$

(12,923

)

 

$

(60,068

)

 

$

(20,788

)

 

$

(109,124

)

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

Basic loss per common share

$

(0.04

)

 

$

(0.13

)

 

$

(0.06

)

 

$

(0.27

)

Diluted loss per common share

$

(0.04

)

 

$

(0.13

)

 

$

(0.06

)

 

$

(0.27

)

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

317,341,907

 

 

 

310,575,050

 

 

 

316,899,214

 

 

 

308,394,443

 

Diluted

 

317,341,907

 

 

 

310,575,050

 

 

 

316,899,214

 

 

 

308,394,443

 

Stock-based compensation expense included in the condensed consolidated statements of loss and comprehensive loss was as follows:

 

Three months ended June 30,

 

Six months ended June 30,

 

2023

 

2022

 

2023

 

2022

Cost of revenues

$

10,696

 

$

49,573

 

$

21,226

 

$

119,482

Selling, general and administrative expenses

 

6,910

 

 

19,392

 

 

14,059

 

 

49,666

Total stock-based compensation expense

$

17,606

 

$

68,965

 

$

35,285

 

$

169,148

 

THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

June 30, 2023

 

December 31, 2022

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

88,151

 

 

$

194,294

 

Trade receivables, net of allowance of $7,915 and $9,531, respectively

 

154,208

 

 

 

201,695

 

Unbilled receivables

 

137,089

 

 

 

122,499

 

Prepaid expenses and other current assets

 

35,262

 

 

 

38,202

 

Total current assets

 

414,710

 

 

 

556,690

 

Property and equipment, net

 

32,062

 

 

 

38,798

 

Right-of-use assets

 

43,577

 

 

 

43,123

 

Intangibles and other assets:

 

 

 

Goodwill

 

422,313

 

 

 

405,017

 

Trademark

 

273,000

 

 

 

273,000

 

Customer relationships, net

 

120,677

 

 

 

124,047

 

Other non-current assets

 

20,888

 

 

 

21,175

 

Total assets

$

1,327,227

 

 

$

1,461,850

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

4,555

 

 

$

5,248

 

Long-term debt – current

 

7,150

 

 

 

7,150

 

Income taxes payable

 

7,449

 

 

 

22,781

 

Accrued compensation

 

77,180

 

 

 

85,477

 

Deferred revenue

 

6,007

 

 

 

5,167

 

Value-added tax and sales tax payable

 

5,289

 

 

 

7,526

 

Accrued expenses

 

14,406

 

 

 

30,227

 

Lease liabilities, current

 

15,594

 

 

 

15,994

 

Total current liabilities

 

137,630

 

 

 

179,570

 

Lease liabilities, non-current

 

30,417

 

 

 

29,885

 

Long-term debt, less current portion

 

289,379

 

 

 

391,856

 

Deferred tax liabilities

 

54,224

 

 

 

62,555

 

Other long-term liabilities

 

21,849

 

 

 

19,762

 

Total liabilities

 

533,499

 

 

 

683,628

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Convertible preferred stock, $0.001 par value; 100,000,000 shares authorized, zero issued and outstanding at June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

Common stock, $0.001 par value; 1,000,000,000 shares authorized, 368,253,048 and 366,306,970 issued, 317,647,945 and 315,681,987 outstanding at June 30, 2023 and December 31, 2022, respectively

 

368

 

 

 

366

 

Treasury stock, 50,605,103 and 50,624,983 shares at June 30, 2023 and December 31, 2022, respectively

 

(624,687

)

 

 

(624,934

)

Additional paid-in capital

 

1,601,559

 

 

 

1,565,514

 

Accumulated other comprehensive loss

 

(39,619

)

 

 

(39,210

)

Retained deficit

 

(143,893

)

 

 

(123,514

)

Total stockholders’ equity

 

793,728

 

 

 

778,222

 

Total liabilities and stockholders’ equity

$

1,327,227

 

 

$

1,461,850

 

 

THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands)

 

 

Six months ended June 30,

 

2023

 

2022

Cash flows from operating activities:

 

 

 

Net loss

$

(20,379

)

 

$

(82,893

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

Depreciation and amortization expense

 

18,220

 

 

 

16,656

 

Bad debt expense

 

2,596

 

 

 

2,038

 

Deferred income tax benefit

 

(12,033

)

 

 

(19,618

)

Stock-based compensation expense

 

35,285

 

 

 

169,148

 

Unrealized foreign currency exchange (gain) loss

 

(735

)

 

 

7,794

 

Non-cash lease expense on right-of-use assets

 

9,312

 

 

 

8,870

 

Other operating activities, net

 

2,018

 

 

 

1,134

 

Changes in operating assets and liabilities:

 

 

 

Trade receivables

 

47,332

 

 

 

(20,069

)

Unbilled receivables

 

(15,276

)

 

 

(48,629

)

Prepaid expenses and other assets

 

2,727

 

 

 

(2,690

)

Lease liabilities

 

(9,495

)

 

 

(6,951

)

Accounts payable

 

(813

)

 

 

1,699

 

Accrued expenses and other liabilities

 

(42,512

)

 

 

(5,012

)

Net cash provided by operating activities

 

16,247

 

 

 

21,477

 

Cash flows from investing activities:

 

 

 

Purchase of property and equipment

 

(3,681

)

 

 

(12,459

)

Proceeds from disposal of fixed assets

 

221

 

 

 

267

 

Acquisitions, net of cash acquired

 

(15,989

)

 

 

(65,410

)

Net cash used in investing activities

 

(19,449

)

 

 

(77,602

)

Cash flows from financing activities:

 

 

 

Payments of obligations of long-term debt

 

(103,575

)

 

 

(3,575

)

Payments of debt issuance costs

 

(99

)

 

 

 

Proceeds from issuance of common stock on exercise of options, net of employee tax withholding

 

3,816

 

 

 

3,928

 

Withholding taxes paid on tender offer

 

 

 

 

(15,469

)

Withholding taxes paid on dividends previously declared

 

 

 

 

(10,009

)

Withholding taxes paid related to net share settlement of equity awards

 

(3,261

)

 

 

(29,026

)

Other financing activities, net

 

80

 

 

 

(48

)

Net cash used in financing activities

 

(103,039

)

 

 

(54,199

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

178

 

 

 

(8,884

)

Net decrease in cash, cash equivalents and restricted cash

 

(106,063

)

 

 

(119,208

)

Cash, cash equivalents and restricted cash at beginning of the period

 

195,564

 

 

 

394,942

 

Cash, cash equivalents and restricted cash at end of the period

$

89,501

 

 

$

275,734

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

Interest paid

$

12,544

 

 

$

8,987

 

Income taxes paid

$

31,929

 

 

$

10,554

 

Withholding taxes payable

$

(454

)

 

$

 

 

 

 

 

Supplemental disclosures of non-cash financing activities:

 

 

 

Withholding taxes payable included within accrued compensation

$

 

 

$

219

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

Cash and cash equivalents

$

88,151

 

 

$

274,527

 

Restricted cash included in other non-current assets

 

1,350

 

 

 

1,207

 

Total cash, cash equivalents and restricted cash

$

89,501

 

 

$

275,734

 

 

THOUGHTWORKS HOLDING, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except percentages, share and per share data)

(unaudited)

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2023

 

2022

 

2023

 

2022

Net loss

$

(12,272

)

 

$

(39,308

)

 

$

(20,379

)

 

$

(82,893

)

Unrealized foreign exchange loss (gain)

 

213

 

 

 

13,434

 

 

 

(735

)

 

 

7,794

 

Stock-based compensation

 

17,606

 

 

 

68,965

 

 

 

35,285

 

 

 

169,148

 

Amortization of acquisition-related intangibles

 

3,669

 

 

 

3,303

 

 

 

7,260

 

 

 

6,295

 

Acquisition costs (a)

 

2,100

 

 

 

1,282

 

 

 

3,806

 

 

 

1,302

 

Certain professional fees (b)

 

1,525

 

 

 

63

 

 

 

1,750

 

 

 

866

 

Employer payroll related expense on employee equity incentive plan (c)

 

249

 

 

 

(125

)

 

 

491

 

 

 

3,497

 

Final tax assessment for closed operations (d)

 

 

 

 

258

 

 

 

 

 

 

258

 

Change in fair value of contingent consideration (e)

 

129

 

 

 

528

 

 

 

129

 

 

 

528

 

Income tax effects of adjustments (f)

 

(3,114

)

 

 

(11,392

)

 

 

(7,435

)

 

 

(25,795

)

Adjusted Net Income

$

10,105

 

 

$

37,008

 

 

$

20,172

 

 

$

81,000

 

 

 

 

 

 

 

 

 

GAAP diluted weighted average common shares outstanding

 

317,341,907

 

 

 

310,575,050

 

 

 

316,899,214

 

 

 

308,394,443

 

Employee stock options, RSUs and PSUs

 

12,250,374

 

 

 

19,069,863

 

 

 

13,561,172

 

 

 

20,913,127

 

Adjusted diluted weighted average common shares outstanding

 

329,592,281

 

 

 

329,644,913

 

 

 

330,460,386

 

 

 

329,307,570

 

GAAP diluted loss per share

$

(0.04

)

 

$

(0.13

)

 

$

(0.06

)

 

$

(0.27

)

Adjusted Diluted EPS

$

0.03

 

 

$

0.11

 

 

$

0.06

 

 

$

0.25

 

  

THOUGHTWORKS HOLDING, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except percentages, share and per share data)

(unaudited)

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2023

 

2022

 

2023

 

2022

Net loss

$

(12,272

)

 

$

(39,308

)

 

$

(20,379

)

 

$

(82,893

)

Income tax expense

 

4,604

 

 

 

477

 

 

 

11,963

 

 

 

4,805

 

Interest expense

 

6,150

 

 

 

4,984

 

 

 

13,012

 

 

 

9,631

 

Other (income) expense, net (g)

 

(6

)

 

 

413

 

 

 

787

 

 

 

325

 

Unrealized foreign exchange loss (gain)

 

213

 

 

 

13,434

 

 

 

(735

)

 

 

7,794

 

Stock-based compensation

 

17,606

 

 

 

68,965

 

 

 

35,285

 

 

 

169,148

 

Depreciation and amortization

 

9,131

 

 

 

8,074

 

 

 

18,220

 

 

 

16,656

 

Acquisition costs (a)

 

2,100

 

 

 

1,282

 

 

 

3,806

 

 

 

1,302

 

Certain professional fees (b)

 

1,525

 

 

 

63

 

 

 

1,750

 

 

 

866

 

Employer payroll related expense on employee equity incentive plan (c)

 

249

 

 

 

(125

)

 

 

491

 

 

 

3,497

 

Final tax assessment for closed operations (d)

 

 

 

 

258

 

 

 

 

 

 

258

 

Adjusted EBITDA

$

29,300

 

 

$

58,517

 

 

$

64,200

 

 

$

131,389

 

Net loss margin

 

(4.3

)%

 

 

(11.8

)%

 

 

(3.4

)%

 

 

(12.7

)%

Adjusted EBITDA Margin

 

10.2

%

 

 

17.6

%

 

 

10.8

%

 

 

20.1

%

   

 

Three months ended June 30,

 

Six months ended June 30,

 

2023

 

2022

 

2023

 

2022

Gross profit, GAAP

$

90,877

 

 

$

81,645

 

 

$

188,411

 

 

$

152,820

 

Stock-based compensation

 

10,696

 

 

 

49,573

 

 

 

21,226

 

 

 

119,482

 

Employer payroll related expense on employee equity incentive plan (c)

 

159

 

 

 

(99

)

 

 

345

 

 

 

2,277

 

Depreciation expense

 

3,257

 

 

 

3,859

 

 

 

6,804

 

 

 

6,595

 

Adjusted Gross Profit

$

104,989

 

 

$

134,978

 

 

$

216,786

 

 

$

281,174

 

Gross margin, GAAP

 

31.6

%

 

 

24.6

%

 

 

31.7

%

 

 

23.4

%

Adjusted Gross Margin

 

36.6

%

 

 

40.6

%

 

 

36.5

%

 

 

43.1

%

   

 

Three months ended June 30,

 

Six months ended June 30,

 

2023

 

2022

 

2023

 

2022

SG&A, GAAP

$

86,626

 

 

$

99,352

 

 

$

172,966

 

 

$

204,117

 

Stock-based compensation

 

(6,910

)

 

 

(19,392

)

 

 

(14,059

)

 

 

(49,666

)

Acquisition costs (a)

 

(2,100

)

 

 

(1,282

)

 

 

(3,806

)

 

 

(1,302

)

Certain professional fees (b)

 

(1,525

)

 

 

(63

)

 

 

(1,750

)

 

 

(866

)

Employer payroll related expense on employee equity incentive plan (c)

 

(90

)

 

 

26

 

 

 

(146

)

 

 

(1,220

)

Adjusted SG&A

$

76,001

 

 

$

78,641

 

 

$

153,205

 

 

$

151,063

 

SG&A margin, GAAP

 

30.2

%

 

 

29.9

%

 

 

29.1

%

 

 

31.3

%

Adjusted SG&A Margin

 

26.5

%

 

 

23.7

%

 

 

25.8

%

 

 

23.1

%

(a)  

Reflects costs for certain professional fees and retention wage expenses related to certain acquisitions.

(b)  

Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees.

(c)  

Excludes employer payroll related expense on employee equity incentive plan as these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise. As a result, these expenses may vary in any particular period independent of the financial and operating performance of our business.

(d)  

Adjusts for certain tax related expenses related to final tax assessments from closing operations in Uganda, which was completely shut down in 2015.

(e)  

Adjusts for the non-cash adjustment to the fair value of contingent consideration.

(f)  

Adjusts for the income tax effects of the foregoing adjusted items.

(g)  

Excludes a gain, which was included within Other (income) expense, net in the condensed consolidated statements of loss and comprehensive loss for the first quarter of 2023, related to the mark to market adjustment on shares received in relation to the sale and settlement of trade receivables in 2022.

Three months ended June 30,

 

Six months ended June 30,

 

2023

 

2022

 

2023

 

2022

Net cash (used in) provided by operating activities

$

(16,800

)

 

$

27,572

 

 

$

16,247

 

 

$

21,477

 

Purchase of property and equipment

 

(2,024

)

 

 

(7,325

)

 

 

(3,681

)

 

 

(12,459

)

Free Cash Flow

$

(18,824

)

 

$

20,247

 

 

$

12,566

 

 

$

9,018